Chinese stimulus and US earnings lifts sentiment

Stocks are set to finish the session on a positive note after the Chinese government announced plans to stimulate the economy.

The update from Beijing lifted global sentiment and that has lasted throughout the day.

Mining companies like BHP Billiton, Rio Tinto, and Glencore are higher on the back of the planned stimulus package from China. The second-largest economy in the world is a major importer of minerals, and traders are snapping up commodity companies as they feel that China’s appetite for metals will rise.

UBS shares are in demand after the firm revealed respectable second-quarter figures. Profit rose by 12% to SFr 1.68 billion, while the consensus estimate was SFr 1.4 billion. The investment banking division was the star performer, as profit jumped by 26%. The wealth management operation saw an outflow of SFr 1.2 billion, and confirmed that seasonal tax-related outflows in the US prompted a withdrawal of funds. The company revealed a positive outlook, but warned that the rise of protectionist policies could weigh on investor sentiment. The share price has been losing ground since January, but has gapped higher today, and if it can remain about the SFr 15 region its outlook could be positive.

Superdry shares have fallen today after Julian Dunkerton, the firm’s co-founder, sold a 6.7% stake in the company. Mr Dunkerton did not give a reason for the sale of the shares, but since leaving the fashion house earlier this year, has devoted time to charity work and his hotel chain. It is worth noting that Mr Dunkerton confirmed he will not sell any more shares in the next 90 days. Stockbroking firm Liberum downgraded the stock to hold from buy after the announcement of the stock disposal.

US

Stock markets are higher as the reporting season has taken centre stage. Google’s parent company, Alphabet, set the tone last night as it earnings per share (EPS) comfortably topped forecasts. Today Verizon, Lockheed Martin and Eli Lilly all surpassed analysts’ forecasts. Over 21% of the companies that make up the S&P 500 have reported their results and according to FactSet, 80.6% have topped EPS forecasts while 74.1% have exceeded revenue estimates.

The trade standoff between the US and China is ongoing, though it has been overshadowed by corporate earnings. Earlier today, President Trump tweeted that ‘tariffs are the greatest’ and that the US is being ‘robbed’ due to current trade agreements. It suggests Mr Trump is still keen to play hardball when it comes to trade negotiations, and this could flare up again.

FX

EUR/USD is higher after France and Germany revealed broadly positive services and manufacturing reports. German service and manufacturing reports both topped estimates. The French manufacturing update exceeded estimates, while the services report fell short of the consensus estimate. The single currency has failed to make much headway in recent weeks, but is at least well off the lows of the month.

GBP/USD has pushed higher this afternoon, helped along by the better-than-expected Confederation of British Industry (CBI) industrial order expectations report. The latest reading from the CBI came in at 11, while economists were expecting 9. Sterling experienced a jump in volatility when Prime Minister May confirmed she will take over the Brexit talks. Despite the upward move in the pound today, the downward trend that began in mid-April is still intact.

Commodities

Gold has crept higher today, and the metal has been assisted by the slip in the US dollar. The commodity has been in a downward trend since April, and we have yet to see any evidence that the bearish move has come to an end. The fact that gold dropped to a one-year low last week is still on traders’ minds.

WTI and Brent crude oil are higher today after Beijing announced plans to stimulate the economy. Oil is a good barometer of how strong or weak the global economy is, and since China is the second-largest economy in the world, any increase in economic activity is likely to ripple out around the globe.

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